Verifying the cash;

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46 HASKINS & SELLS August
Verifying the Cash
THE term "verification of cash" connotes
more than the mere counting of the phy­sical
cash on hand and reconciling of the
bank accounts at a given date. It suggests
an operation which brings into play the
combined knowledge, skill, ingenuity and
resourcefulness of the auditor in satisfying
himself that the balance of cash as claimed
is correct in every sense of the word.
The client in submitting the cash ac­counts
for audit fondly hopes that they are
correct. Modern business organization de­mands
usually that the function of handling
the cash be delegated to some employe.
The employer is careful in the selection of
such employe; he takes the precaution to
bond him; he observes his conduct, some­times
outside as well as inside of the office,
but he is not quite satisfied as to his fidelity
and efficiency until his work has been inde­pendently
reviewed.
The unbounded confidence which the
client usually has in the ability of the audi­tor
places a great moral responsibility on
the latter. Lest this confidence be mis­placed
it is incumbent that the auditor
equip himself to uncover any irregularity
of which the cashier may be guilty. To do
this, careful analysis of the work of the
cashier, with the possible irregularities, is
necessary.
The balance of cash is impliedly what it is
shown to be by the books. The amount is
the correct amount judged in the light of
the contributing causes. The factors which
comprise the balance are bona fide out­growths
of the preceding operations and
not substitutions arranged for the occasion.
In the normal situation there are a cer­tain
number of standard operations in­volved
in handling the cash. There is first
the receipt of the cash; next the entry on
the receipt side of the cash book; putting
the money in the cash box or depositing it
in the bank. There follows at one time or
another the footing of the receipt side of
the cash book and carrying forward the
footings. The other operations consist in
drawing checks or paying out the cash, en­tering
the disbursements in the cash book,
footing and carrying forward the disburse­ment
side, and striking the balance. If all
these are carried out faithfully and accu­rately
the balance resulting from the count
and the reconciliation of the bank accounts
will agree with the balance shown by the
cash book.
In any well ordered modern concern all
receipts will be deposited in the bank. No
disbursements will be made otherwise than
by check, except small amounts which will
be paid out of a fund regularly estab­lished
by the drawing of a check and con­sequently
controlled. Unfortunately, all
concerns are not well ordered nor are they
modern. Cash receipts are frequently used
for disbursements. Unused balances of
pay-roll check proceeds are thrown into the
cash. Cash is drawn from the bank by
check for hand disbursement. Checks and
cash are used interchangeably. The lot of
the auditor is made considerably more diffi­cult
where such conditions exist, but he is
none the less responsible, even though it
may almost be said that any concern which
knowingly permits such practices deserves
no sympathy if a shortage occurs. The
present discussion will probably be much
clearer if the consideration of these excep­tions
is postponed until after taking up a
case in which there is a good system and
modern practice prevails.
The various ways in which the cashier
may bring about irregularities are as fol­lows:
Failing to enter a cash receipt; en­tering
it short; underfooting the receipt
side of the cash book; carrying forward a
footing on the receipt side short; under­stating
a balance when carrying it forward;
making entries for disbursements where no
cash is paid out; drawing checks to fictitious
persons or persons in collusion; overstating
an entry on the disbursement side of the
cash book; overfooting a disbursement
page; carrying forward a footing on the
disbursement side for more than it should
be; stating a balance incorrectly.
(To be continued)
C